Skip to content

What to Do if Your Small Business Receives an Unfair Dismissal Claim

If you run a small business, one of your biggest staffing challenges is not only hiring and retaining productive employees, but appropriately dismissing staff who are not the right fit. You may have dismissed an underperforming employee because you felt it was the right decision for your business. However, all of a sudden, you receive a notice from the Fair Work Commission stating that you are facing an unfair dismissal claim. This article will explain the process you should undertake if you have received an unfair dismissal claim from a former employee. 

Are Small Businesses Exempt From Unfair Dismissal Claims?

There is a common misconception that small businesses are exempt from unfair dismissal proceedings. A ‘small business’ is a business with fewer than 15 employees. All small businesses must comply with the Small Business Fair Dismissal Code (the Code).

As a small business owner, this means that any employee dismissals you undertake are not unfair if they comply with the Code.

If you dismiss an employee for serious misconduct, this is consistent with the code and, therefore, not unfair. You can typically dismiss summarily in these cases, which means you can dismiss the employee without warning or notice. Serious misconduct includes:

  • theft;
  • fraud;
  • violence; and
  • serious breaches of workplace health and safety procedures.

However, if you dismiss an employee for conduct that is not ‘serious misconduct’, there are several conditions that you must need for the dismissal to be lawful. 

For example, if an employee has not been performing as expected, you must first formally warn them of their underperformance. You must also give them the opportunity to improve their performance.

Failing to warn an employee of poor performance and dismissing them on the spot may be grounds for an unfair dismissal claim, even for a small business.

Front page of publication
Employee Performance Improvement Plan

If your employee is not performing at the expected level, you may need to implement a performance improvement plan (PIP) to get them back on track. Our free PIP template will assist.

Download Now

The Unfair Dismissal Claims Process

It is important to note that a notice of unfair dismissal is serious. If someone has initiated legal proceedings against you, and if you do not take action or respond, an adverse judgment could be made against you. Most Fair Work claims go through the same process. If you have received notice of unfair dismissal, it is in your best interest to respond to the claim and organise a conciliation hearing. 

Lodgement and Notice of an Unfair Dismissal Claim

An employee will lodge an unfair dismissal complaint against you, their employer, through the Fair Work Commission. The case file is then allocated to a case manager. The Commission does not assess the substance of the claim at this point. The case manager will not provide legal advice to you or the employee, as their function is to organise the next steps rather than to decide the outcome of the case.

The Fair Work Commission will then notify you of an unfair dismissal claim. This is typically the first indication that someone has made a claim against you. At this stage, the Fair Work Commission has not investigated the claim.

Responding to the Unfair Dismissal Claim

You must respond to the notice of unfair dismissal within seven days. This includes raising any objections. You will need to prepare and file the:

  • ‘employer response’ form; or 
  • ‘objection to an application for unfair dismissal’ form.

If you raise any jurisdictional issues, a pre-conciliation hearing may be set up to address these. This is an informal hearing held before the actual conciliation. A jurisdictional issue essentially states that the employee had no right to make an unfair dismissal claim. Some common jurisdictional issues are that the employee:

  • lodged their unfair dismissal claim after 21 days from dismissal (although this can be extended in certain circumstances);
  • has made a claim against you where you were not their employer; or
  • worked for the employer for less than six months, or less than 12 months if your business has fewer than 15 employees.

Conciliation and Reaching a Settlement

In most cases, the first interaction between you and your employee will be at the conciliation. Even when you have raised jurisdictional issues, these issues are often heard at a conciliation rather than a pre-conciliation hearing. This is an informal mediation between you, the employee and a member of the Fair Work Commission to discuss the issues and see if you can reach a settlement. 

If you have a lawyer or representative, they may be able to attend the conciliation with you.

If the conciliation has been successful, you and the other party will reach a settlement. Four out of five unfair dismissal claims result in a settlement after conciliation.

Where the parties are unable to reach a settlement, the claim will progress to a hearing at the Fair Work Commission. This is a more formal process than conciliation and is essentially a court case. A commission member will hear evidence from both you and the employee and decide whether the dismissal was unfair. If the commission finds that the dismissal was unfair, some of the orders they can make include that the employee be:

  • reinstated; or
  • compensated (this cannot be more than 26 weeks’ pay).

Most employees do not receive the maximum amount of compensation, and in 2020, the largest bracket of payouts to employees by employers was in the range of $6,701.00 or 5.25 weeks’ worth of pay.

Continue reading this article below the form
Loading form

Key Takeaways

If you have received an unfair dismissal claim, you will need to respond to it within seven days. Most matters are referred to conciliation and can be settled out of court. If you cannot settle the matter at conciliation, it will progress to a hearing at the Fair Work Commission. It is important that you know how to properly respond to an unfair dismissal claim, including any potential objections you can raise.If you need help responding to an unfair dismissal claim, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Register for our free webinars

Managing Psychosocial Risks: Employer and Legal Counsel Responsibilities

Online
Protect your business by managing workplace psychosocial risks. Register for our free webinar.
Register Now

Franchisor Compliance Update: Code Obligations from November 2025

Online
Stay compliant with the new franchising updates from November 2025. Register for our free webinar.
Register Now

Avoiding NDIS Pitfalls: Key Breaches and How to Prevent Them

Online
Understand NDIS pitfalls and reduce the risk of breaches affecting your business. Register for our free webinar.
Register Now

Demystifying M&A: What Every Business Owner Should Know

Online
Understand the essentials of mergers and acquisitions and protect your business value. Register for our free webinar.
Register Now
See more webinars >
Madeleine Stevens

Madeleine Stevens

Read all articles by Madeleine

About LegalVision

LegalVision is an innovative commercial law firm that provides businesses with affordable, unlimited and ongoing legal assistance through our membership. We operate in Australia, the United Kingdom and New Zealand.

Learn more

We’re an award-winning law firm

  • Award

    2025 Future of Legal Services Innovation Finalist - Legal Innovation Awards

  • Award

    2025 Employer of Choice - Australasian Lawyer

  • Award

    2024 Law Company of the Year Finalist - The Lawyer Awards

  • Award

    2024 Law Firm of the Year Finalist - Modern Law Private Client Awards

  • Award

    2022 Law Firm of the Year - Australasian Law Awards